Apple increased R&D spending by $1 billion in 2012

Apple published its annual Form 10-K for 2012, a detailed (and tedious) fiscal report for investors required by the Securities and Exchange Commission. Along with a summary of numbers for the past three years, the filing reveals spending on research and development has grown significantly to $3.4 billion—an increase of $1 billion over 2011. Apple has added the equivalent of nearly 13,000 employees over the last year, the majority of which staff its nearly 400 retail stores worldwide.

Other numbers have increased significantly as well. Apple is sitting on $121 billion worth of cash and equivalents, up from $81 billion at the end of fiscal 2011 and more than double the $51 billion hoard it was sitting on in fiscal 2010. Total sales were $156 billion, up 45 percent year-over-year from $108 billion. Profits totaled $41.7 billion, up 61 percent year-over-year. Gross margins for 2012 were 43.9 percent, up from 40.5 percent (and still much higher than most competitors).

Still, Apple notes it faces significant risks to its overall stellar financial health. In particular, the company noted competition in computers and mobile devices is getting stiffer by the minute.

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer," Apple noted in its report. "These markets are characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers and businesses."

Apple also acknowledges new and ongoing intellectual property lawsuits will continue to be a drain on company resources. "Such litigation is often expensive, time-consuming, disruptive to the Company’s operations, and distracting to management. In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur."

Developers take note: Apple definitely values your contributions to both its iOS and Mac platforms, even if the company's actions may sometimes seem to be developer-hostile. "The Company’s future performance depends in part on support from third-party software developers. If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products."

Just throwing out Microsoft's R&D numbers, Microsoft spent $9.8 billion in the category for its fiscal 2012 year and 9 billion in 2011. Comparing the two company's R&D numbers are intriguing. Obviously both have different goals; product development, inventions/innovation, pure research etc.

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

not what it says at all.the whole "or" is about competition coming up with ideas of their own.

Other numbers have increased significantly as well. Apple is sitting on $1.21 billion worth of cash and equivalents, up from $81 million at the end of fiscal 2011 and more than double the $51 million hoard it was sitting on in fiscal 2010. Total sales were $156 billion, up 45 percent year-over-year from $108 billion. Profits totaled $41.7 billion, up 61 percent year-over-year. Gross margins for 2012 were 43.9 percent, up from 40.5 percent (and still much higher than most competitors).

So they value developers? Maybe they will put some polish on objective-c and give us a modern language.

Or not.

Even though I mostly use C# and .NET 4 I still think Objective C has a lot going for it.

Really? Coming from C# I find objective-c to be painful. It's got a lot of syntatic cruft, and implementing many patterns is substantially more difficult. It's also harder for me to read, though that may just be a familiarity thing.

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

not what it says at all.the whole "or" is about competition coming up with ideas of their own.

The first part is the assumption of what will happen, the second part is the less likely but still possible course of action.

What patterns are difficult to implement in ObjC ? It seems to me to be a pattern-derived language - as if the creators of the frameworks/language actually tried to write an implementation of the gang-of-4 book...

The first part is the assumption of what will happen, the second part is the less likely but still possible course of action.

Says who ? Looks like two possible risk statements to me, separated (as pointed out above) by an OR clause. To me, you're overlaying your own interpretation onto a simple statement and getting it wrong.

"The coming election will result in the Republicans winning and nominating Mitt Romney as president, or, alternatively the Democrats will retain the presidency and Barack Obama will remain president".

The 'AND' clauses bind to their respective 'OR' clauses making two independent statements. I have no idea which of the two will be correct, but one will (probably, barring something weird happening) become true soon.

What patterns are difficult to implement in ObjC ? It seems to me to be a pattern-derived language - as if the creators of the frameworks/language actually tried to write an implementation of the gang-of-4 book...

The factory pattern is one. Some people recommend using class extensions, which just seems completely backwards to me since the entire point of a factory pattern is to reduce dependency on the class...

So, weren't they finally going to pay out dividends? Doesn't sound like it.

They sure are. Last quarter they paid out $2.5 billion in dividends, and they will be again in about 2 weeks (for shareholders as of 11/12/2012). That's quite a lot of money, when you consider it's over 3x more than they spend on their r&d, including the 2012 ramp-up.

The last part is most telling of what Apple is willing to do to keep its competitive edge. It seems that they're willing to engage with developers more to keep the iOS application ecosystem superior to that of their competitors. Reading between the lines this can be interpreted that Apple would be willing to enter exclusivity agreements and/or lower the slice Apple makes on each application sold. Apple could also use lowering their take as an incentive for developers to lower app prices for iOS.

As for the $121 billion, it'll be interesting what they spend it on. So far Apple has been rather conservative when it comes to acquisitions. They're also one of the few companies that if they can't find a supplier for parts they have the resources to designs and/or start manufacturing the parts themselves. Manufacturing in house would only happen if there is weakness in the supply chain which is currently stressed due to relationships involving litigation. The only downside is that it'd take upward of 5 years for some of these manufacturing facilities to come fully online at which point their merit may have already passed.

The first part is the assumption of what will happen, the second part is the less likely but still possible course of action.

Says who ? Looks like two possible risk statements to me, separated (as pointed out above) by an OR clause. To me, you're overlaying your own interpretation onto a simple statement and getting it wrong.

"The coming election will result in the Republicans winning and nominating Mitt Romney as president, or, alternatively the Democrats will retain the presidency and Barack Obama will remain president".

The 'AND' clauses bind to their respective 'OR' clauses making two independent statements. I have no idea which of the two will be correct, but one will (probably, barring something weird happening) become true soon.

Apple also acknowledges new and ongoing intellectual property lawsuits will continue to be a drain on company resources. "Such litigation is often expensive, time-consuming, disruptive to the Company’s operations, and distracting to management.

*faint*...... *gasp*.....So, how about giving it all a break for a bit, eh?

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In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur."

At least you guys are potentially considering it. The first step is awareness that you have a problem.Bravo Apple...... bravo!

I'm surprised by the relatively low amount of R&D spending. Their future is pretty much entirely dependent on what they come up with in the future, that to me means they have to invest heavily in R&D.

They may just have it a limit as to what they can productively spend. It's extremely hard to hire developers right now, especially systems devs.

Another point is that they have not that many products at all. Which may prove to be a problem anyway, but then they once had a near-death experience after a sprawling product palette going sour and they won't go this way again.

Not sure why you are getting so much hate, I've seen that video before and it is a quick, easy to digest summary dispelling many of the myths Apple's apologists have cooked up the last 5-10 years.

rougegoat wrote:

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

Surface and Nexus 7 are both products which compete in completely different directions with Apple's existing product line with no imitation.

If anything, the above quote is the CEO bracing for a fairly sizable downturn in success. He's complaining about consumer price sensitivity when Apple has a strong track record of ignoring consumer pricing desires. Businesses' price sensitivity doesn't even factor in, sales to businesses aren't even 1/1000th of Apple's sales.

If you want to know where the second end to Apple's success came, it's right here. Those are the sheepish words of a company leader who sees the tide coming in. I suspect we will see a substantial uptick in litigation as Apple turns into a scared, cornered beast with nowhere to go in the market (again).

As for Apple's relatively low R&D spending, that has a lot to do with the fact that other companies and universities do most of their development for them. Samsung and LG keep fighting to be the best LCD maker, and Apple wins. ARM picks a David and Goliath fight with x86, and Apple wins. Qualcomm goes toe to toe with Motorola, TI, and Samsung, and Apple wins. Samsung and Intel battle for foundry supremacy, Apple wins. Apple spends little on R&D ultimately because they don't do R&D, they perform integration of the finest innovations every other player in the market has to offer.

I'm surprised by the relatively low amount of R&D spending. Their future is pretty much entirely dependent on what they come up with in the future, that to me means they have to invest heavily in R&D.

They may just have it a limit as to what they can productively spend. It's extremely hard to hire developers right now, especially systems devs.

Another point is that they have not that many products at all. Which may prove to be a problem anyway, but then they once had a near-death experience after a sprawling product palette going sour and they won't go this way again.

Apple is a strange company, no doubt.

Well, they really don't truly "manufacture" anything themselves. Maybe a little bit of assembly, but when you get down to it, they primarily design and market. I find it strange that if you had $121bn in cash (and equivalents) that you're only putting what amounts to less than 3% of that into R&D when that is REALLY a big part of the backbone of the company. Maybe I'm seeing this wrong, but if you're not trying to keep ahead of your competitors, you're falling behind.

Again, I'm glad to see that they are INCREASING their efforts there, even if I don't fully grasp the exact value of that.

All companies that depend on IP write these things in their reports. Nothing new here. We would see the same things in Microsoft's report, Google's, Nokia's, Motorola's, etc.

The interesting thing is the growth and sustained profitability, though Cook mentioned that the margins should e a bit lower next year due to higher product development costs.

As far as R&D expenses go, each company does R&D according to what they think they need. I would like to see Apple do more basic research in semiconductors in light of their becoming one of the largest producers of SoC's, even though they're being made by someone else.

But looking at the numbers tells us little. Nokia outspends Apple by a large amount, but last time I looked, they made almost 225 different phone models. Even though many of those are somewhat similar to others in a "family", that money is spread around, and each major model gets little. Microsoft too spends a lot, but they've been criticized for getting little useful out of it.

Not sure why you are getting so much hate, I've seen that video before and it is a quick, easy to digest summary dispelling many of the myths Apple's apologists have cooked up the last 5-10 years.

rougegoat wrote:

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

Surface and Nexus 7 are both products which compete in completely different directions with Apple's existing product line with no imitation.

If anything, the above quote is the CEO bracing for a fairly sizable downturn in success. He's complaining about consumer price sensitivity when Apple has a strong track record of ignoring consumer pricing desires. Businesses' price sensitivity doesn't even factor in, sales to businesses aren't even 1/1000th of Apple's sales.

If you want to know where the second end to Apple's success came, it's right here. Those are the sheepish words of a company leader who sees the tide coming in. I suspect we will see a substantial uptick in litigation as Apple turns into a scared, cornered beast with nowhere to go in the market (again).

As for Apple's relatively low R&D spending, that has a lot to do with the fact that other companies and universities do most of their development for them. Samsung and LG keep fighting to be the best LCD maker, and Apple wins. ARM picks a David and Goliath fight with x86, and Apple wins. Qualcomm goes toe to toe with Motorola, TI, and Samsung, and Apple wins. Samsung and Intel battle for foundry supremacy, Apple wins. Apple spends little on R&D ultimately because they don't do R&D, they perform integration of the finest innovations every other player in the market has to offer.

So riddle me this......What happens when/if these other companies that ARE the R&D leaders decide to take their ball and go home and refuse to deal with Apple due to past "troubles" in their dealings with Apple?

(Yes. I think this is unlikely as Apple does pay these companies handsomely for that tech..... but just saying.... what IF.)

So riddle me this......What happens when/if these other companies that ARE the R&D leaders decide to take their ball and go home and refuse to deal with Apple due to past "troubles" in their dealings with Apple?

(Yes. I think this is unlikely as Apple does pay these companies handsomely for that tech..... but just saying.... what IF.)

I'd imagine the first thing that would happen is that the shareholders of those companies would sack the board and CEO and install people with functioning brains.

No company just stops selling their components to another company for manufacture because of past upsets. Why even manufacture components if they're not willing to sell them?

trevorzw wrote:

Just throwing out Microsoft's R&D numbers, Microsoft spent $9.8 billion in the category for its fiscal 2012 year and 9 billion in 2011. Comparing the two company's R&D numbers are intriguing. Obviously both have different goals; product development, inventions/innovation, pure research etc.

I was under the impression that MS was wrapping up (or had wrapped up) pure research to cut costs. Either way, MS has more diversity in its products than Apple, so their higher R&D budget makes sense to me.

Apple have never undertaken R&D without a direct link to a future product. They've been very focused in that for decades.

Not sure why you are getting so much hate, I've seen that video before and it is a quick, easy to digest summary dispelling many of the myths Apple's apologists have cooked up the last 5-10 years.

rougegoat wrote:

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

Surface and Nexus 7 are both products which compete in completely different directions with Apple's existing product line with no imitation.

If anything, the above quote is the CEO bracing for a fairly sizable downturn in success. He's complaining about consumer price sensitivity when Apple has a strong track record of ignoring consumer pricing desires. Businesses' price sensitivity doesn't even factor in, sales to businesses aren't even 1/1000th of Apple's sales.

If you want to know where the second end to Apple's success came, it's right here. Those are the sheepish words of a company leader who sees the tide coming in. I suspect we will see a substantial uptick in litigation as Apple turns into a scared, cornered beast with nowhere to go in the market (again).

As for Apple's relatively low R&D spending, that has a lot to do with the fact that other companies and universities do most of their development for them. Samsung and LG keep fighting to be the best LCD maker, and Apple wins. ARM picks a David and Goliath fight with x86, and Apple wins. Qualcomm goes toe to toe with Motorola, TI, and Samsung, and Apple wins. Samsung and Intel battle for foundry supremacy, Apple wins. Apple spends little on R&D ultimately because they don't do R&D, they perform integration of the finest innovations every other player in the market has to offer.

So riddle me this......What happens when/if these other companies that ARE the R&D leaders decide to take their ball and go home and refuse to deal with Apple due to past "troubles" in their dealings with Apple?

(Yes. I think this is unlikely as Apple does pay these companies handsomely for that tech..... but just saying.... what IF.)

This whole line of posting is nonsense. Every company writes the same thing in their financial report. It's a requirement. If a company has competitors, they have to write that those competitors may come up with a way to harm the business. This is nothing new.

Few companies come up with new technology. And fewer of those that do become successful because of it. No "invention" is truly new. They all depend on work done before. But if inventions aren't used, they are worthless. If Apple and HP hadn't taken up the 3.25" floppy drive, it would have died. They didn't have to invent it. USB was considered a failure until Apple used it in the iMac.

In Bell Labs, innovation was considered to not be an invention itself, but also the process of getting it into a lot of people's hands. Apple has done that very well. Much of what we see in computers, phones, content delivery, etc. was brought to us by Apple. You may not be happy about that, but it's true nevertheless.

And Apple did invent. Just to mention one thing. It was Apple that went to Acorn and convinced them that they should form a company to invent a mobile version of the CPU Acorn had for desktop use. They agreed, and they and Apple started ARM, owned 50/50. They and Apple developed those ARM chips. Apple used them in the Newton, which was the first real commercial tablet. Apple later, over time, sold off their 50% of the company.

Not sure why you are getting so much hate, I've seen that video before and it is a quick, easy to digest summary dispelling many of the myths Apple's apologists have cooked up the last 5-10 years.

rougegoat wrote:

"The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer,"

Huh....so the assumption is that the only way for competition to intensify is stealing of ideas? No one else could come out with something original that they don't have that could draw people away? That seems very full of themselves, even for Apple.

Surface and Nexus 7 are both products which compete in completely different directions with Apple's existing product line with no imitation.

If anything, the above quote is the CEO bracing for a fairly sizable downturn in success. He's complaining about consumer price sensitivity when Apple has a strong track record of ignoring consumer pricing desires. Businesses' price sensitivity doesn't even factor in, sales to businesses aren't even 1/1000th of Apple's sales.

If you want to know where the second end to Apple's success came, it's right here. Those are the sheepish words of a company leader who sees the tide coming in. I suspect we will see a substantial uptick in litigation as Apple turns into a scared, cornered beast with nowhere to go in the market (again).

As for Apple's relatively low R&D spending, that has a lot to do with the fact that other companies and universities do most of their development for them. Samsung and LG keep fighting to be the best LCD maker, and Apple wins. ARM picks a David and Goliath fight with x86, and Apple wins. Qualcomm goes toe to toe with Motorola, TI, and Samsung, and Apple wins. Samsung and Intel battle for foundry supremacy, Apple wins. Apple spends little on R&D ultimately because they don't do R&D, they perform integration of the finest innovations every other player in the market has to offer.

So riddle me this......What happens when/if these other companies that ARE the R&D leaders decide to take their ball and go home and refuse to deal with Apple due to past "troubles" in their dealings with Apple?

(Yes. I think this is unlikely as Apple does pay these companies handsomely for that tech..... but just saying.... what IF.)

They buy them. They have the free cash to buy anyone they want or finance it if its someone Samsung or Microsoft's size. Knowing this I think most companies just play ball.

This whole line of posting is nonsense. Every company writes the same thing in their financial report. It's a requirement. If a company has competitors, they have to write that those competitors may come up with a way to harm the business. This is nothing new.

It's just legalise to keep shareholders from suing them. Everything in any company PR-related documentation has already been raked over by a legal team.

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Few companies come up with new technology. And fewer of those that do become successful because of it. No "invention" is truly new. They all depend on work done before. But if inventions aren't used, they are worthless. If Apple and HP hadn't taken up the 3.25" floppy drive, it would have died. They didn't have to invent it. USB was considered a failure until Apple used it in the iMac.

This is very true. Unlike patent portfolios which *almost* always never get used by the company holding the portfolio. Which is why patent reform is direly needed.

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In Bell Labs, innovation was considered to not be an invention itself, but also the process of getting it into a lot of people's hands. Apple has done that very well. Much of what we see in computers, phones, content delivery, etc. was brought to us by Apple. You may not be happy about that, but it's true nevertheless.

There's innovation in technology and innovation in business. Apple has strength in both. Which is why they sit on so much cash.

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And Apple did invent. Just to mention one thing. It was Apple that went to Acorn and convinced them that they should form a company to invent a mobile version of the CPU Acorn had for desktop use. They agreed, and they and Apple started ARM, owned 50/50. They and Apple developed those ARM chips. Apple used them in the Newton, which was the first real commercial tablet. Apple later, over time, sold off their 50% of the company.

That was years ago. I think people would like to know what Apple's R&D is orignally producing in the here and now. I don't think they're the same company they were 30 years ago ... they've moved more into the lucrative business of repackaging existing technology and selling them in novel ways.

What patterns are difficult to implement in ObjC ? It seems to me to be a pattern-derived language - as if the creators of the frameworks/language actually tried to write an implementation of the gang-of-4 book...

The factory pattern is one. Some people recommend using class extensions, which just seems completely backwards to me since the entire point of a factory pattern is to reduce dependency on the class...

Hmm - reading the Wikipedia entry for a factory pattern isn't quite how I'd use it (I'd usually have an object that was passed some sort of data-description without specifying the class, and that factory object then chose the class to create and returned it), but it seems trivial to implement such a pattern in ObjC. In fact I've just done the 'room/magic-room' one to prove the case, and it happily dumps: